Alleged $300M Crypto Ponzi Scheme Targeted by US SEC

Alleged $300M Crypto Ponzi Scheme Targeted by US SEC

A pyramid scheme is not a sustainable business model on the blockchain either and Forsage is about to come to the same conclusion.

Multinational Operation Worth More Than $300M

On Monday, August 1, 2022, the United States Securities and Exchange Commission (US SEC) issued a press release about charging 11 people relating to the alleged pyramid (aka Ponzi) scheme called Forsage. Cointelegraph reports that the charge for all 11 people is “Fraud” under Sections 10 B-C and 17(a) (1 & 3), and violations under Section 5 A & C and of the US Securities Act.

Carolyn Welshhans, who was General Attorney at the SEC in Washington back in 2020 and is now Acting Chief of the SEC’s Crypto Assets and Cyber unit, which is the unit that led the investigation into Forsage, described it as a “fraudulent pyramid scheme launched on a massive scale and aggressively marketed to investors.”

Forsage users would earn returns by solely by recruiting other people to join the alleged scheme, which is very typical of pyramid schemes. According to the SEC court document, there was no “no apparent source of revenue other than funds received from investors” which is a classic red light signaling a pyramid scheme where funds from new investors are simply used to pay back earlier investors. Welshhans added that “Fraudsters cannot circumvent the federal securities laws by focusing their schemes on smart contracts and blockchains,” citing the discovery of the inner workings of the allegedly fraudulent platform.

Final Nail in the Coffin

Forsage was first launched back in January, 2020. The four founding members were multinational, Mikhail Sergeev and Sergey Maslakov (Russia), Vladimir Okhotnikov (the Republic of Georgia) and Jane Doe aka Lola Ferrari of Indonesia. However, the SEC has charged Americans as well, who allegedly helped promote and endorse the illegal scheme on their websites, social media profiles, etc. Crypto Crusaders also have members who are targeted with the same charges. As per the press release, issued on SEC’s website, “The SEC’s complaint seeks injunctive relief, disgorgement, and civil penalties” for the four founding members, as well as the promoters of the alleged scheme.

The SEC has said that “Without admitting or denying the allegations,” there were two defendants who have already “agreed to settle the charges,” with one of them agreeing to pay “disgorgement and civil penalties,” and the other will do so “as determined by the court”. Of course, both agreements are subject to court approval.

Forsage has allegedly raised more than $300 million from retail investors as part of the alleged scheme and its actions took place in multiple countries. It was on its way to fast becoming one of the best-known dapps on the Ethereum blockchain throughout the world, but in September of 2020 – less than ten months since its launch – Forsage was subjected to a cease and desist order by the SEC in the Philippines, with the same happening just a few months later, in March of 2021, the orders being issued by the Montana Commissioner of Securities and Insurance.

However, Forsage has apparently decided to ignore these warnings. As can be seen on its YouTube channel, the platform has been promoted just as recently as less than two weeks ago, with an upload titled “New Launch Coming Soon” and its Twitter page is active as well. According to its own website, over two million users have been included in its platform since launch, and there is a daily statistic for new users that also signals that Forsage has been active, regardless of the cease and desist orders.

Author: Ian Douglas